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Which accounting standard requires companies to recognize revenue when it is ear

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Question: Which accounting standard requires companies to recognize revenue when it is earned, regardless of when cash is received?

Options:

  1. Cash Basis Accounting
  2. Accrual Basis Accounting
  3. Matching Principle
  4. Revenue Recognition Principle

Correct Answer: Accrual Basis Accounting

Solution: 

Accrual Basis Accounting requires revenue to be recognized when earned, aligning with the revenue recognition principle.

Which accounting standard requires companies to recognize revenue when it is ear

Practice Questions

Q1
Which accounting standard requires companies to recognize revenue when it is earned, regardless of when cash is received?
  1. Cash Basis Accounting
  2. Accrual Basis Accounting
  3. Matching Principle
  4. Revenue Recognition Principle

Questions & Step-by-Step Solutions

Which accounting standard requires companies to recognize revenue when it is earned, regardless of when cash is received?
  • Step 1: Understand that companies need to report their earnings accurately.
  • Step 2: Learn that revenue is considered earned when a product or service is delivered, not when cash is received.
  • Step 3: Recognize that the accounting standard that supports this is called Accrual Basis Accounting.
  • Step 4: Remember that this method follows the revenue recognition principle, which states that revenue should be recorded when it is earned.
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